Gold Price - Where is it heading?

[tinhat]

Having just read the article where the author refers to a bull market in gold relative to the Aus $ and Yen, both of those currencies are in current bear markets relative to the US $. Of course that may change. Currencies generally lead, which means if policy seeks a strong US $ rates may follow (assuming that the dollar does weaken), which could change the dynamic.

If the US $ starts to fall and Aus $ and Yen rise, then gold enters a bull market relative to US $ and bear market as against the others.

Essentially (the above), says absolutely nothing of any importance about gold as against the US $. It only makes sense to discuss gold against a consistent currency (whichever one you want), but is usually the US $.

jog on
duc

As stated earlier, if one subscribes to the theory that the price trend of Au and the price trend of AUD are generally correlated, something has to give; the AUD is already out of alignment with the price of Au. Interest rate differentials between different jurisdictions doesn't mean anything any more. Money is becoming worthless. My gut prediction is that gold is not going to retrace far and will rise in the medium term, commodity prices are going to rise over 2020 calendar year and the AUD will be up against the USD.

 

[ducati916]

As stated earlier, if one subscribes to the theory that the price trend of Au and the price trend of AUD are generally correlated, something has to give; the AUD is already out of alignment with the price of Au. Interest rate differentials between different jurisdictions doesn't mean anything any more. Money is becoming worthless. My gut prediction is that gold is not going to retrace far and will rise in the medium term, commodity prices are going to rise over 2020 calendar year and the AUD will be up against the USD.

I would argue that most (here) agree that Gold is money. Most would agree that Gold is also sound money. Those that seek relief from endless inflation, eventually end up with Gold as part of their holdings. I also expect (over time) that Gold rises, so would classify myself as a Gold bull.

The problem is that Gold competes against other asset classes for investor money.

So my issue is this: 1980 +/- Gold enters a long bear market. Why?

Fast forward to today. There are (serious) bull markets in: US Stocks, US Bonds, Real Estate, US$
Bear markets in commodities, certain currencies.

The (recent high) at US 1800/1900 has not yet been exceeded.
Is this current run higher the start of the next leg higher (new all time highs); or
Simply a bounce, before a further decline?

On a simply chart basis, we are still at an unknown point. It cannot be confirmed that the bull that started in 2001 +/- is now continuing and it cannot be denied either. The point is moot.

Many things could yet change.

jog on
duc

 

[rederob]

On a simply chart basis, we are still at an unknown point. It cannot be confirmed that the bull that started in 2001 +/- is now continuing and it cannot be denied either. The point is moot.

It also depends on what time scales you are working to for your comments and I am not sure that most people would regard a 6-year lull in gold's ascent - ie 2013 to 2019 - a bull market.
On the other hand at a greater time scale the underpinning of gold's value is tied to US debt levels and the fact is that many people now regard its debt as unsustainable:


I suspect most at ASF work to time scales of less than 5 years for their investment decision and am happy to be corrected.
In that light I for one am looking at the most likely scenarios that will move POG this year and next, as I believe that the hedge books of equities can see POG rise well after its practical use-by date (in other words the indicators can turn negative and remain negative for the next year before POG declines significantly).

As stated earlier, if one subscribes to the theory that the price trend of Au and the price trend of AUD are generally correlated, something has to give; the AUD is already out of alignment with the price of Au. Interest rate differentials between different jurisdictions doesn't mean anything any more. Money is becoming worthless. My gut prediction is that gold is not going to retrace far and will rise in the medium term, commodity prices are going to rise over 2020 calendar year and the AUD will be up against the USD.

I am on board with all your points - for now.
I will repeat the point I made previously about correlations in that they are post-fact. To make money from a strong correlation you must know the direction of the lead indicator. In the short term POG and the $USD are more positively correlated than POG and the $AUD. Both are heading for rate cuts. The short term likelihood for POG to continue rising seems much better than the chance it will decline meaningfully. The next question then relates to follow-through. And that is largely predicated on the global economy which we all can see as currently in relatively poor shape. So where @ducati916 and I differ relates to what we regard as "moot."

 

[rederob]

My view is $1650 this year is a very likely outcome and a spurt to $1800 with a bumpy retrace cannot be ruled out given gold's momentum. It just needs some convergence of nasty short-term geopolitical events to kick it off, eg. more oil refinery/tanker disruptions in the Middle East.

Well this might happen sooner rather than later.
Nice spike today:

 

[ducati916]

It also depends on what time scales you are working to for your comments and I am not sure that most people would regard a 6-year lull in gold's ascent - ie 2013 to 2019 - a bull market.
On the other hand at a greater time scale the underpinning of gold's value is tied to US debt levels and the fact is that many people now regard its debt as unsustainable:


I suspect most at ASF work to time scales of less than 5 years for their investment decision and am happy to be corrected.
In that light I for one am looking at the most likely scenarios that will move POG this year and next, as I believe that the hedge books of equities can see POG rise well after its practical use-by date (in other words the indicators can turn negative and remain negative for the next year before POG declines significantly).

I am on board with all your points - for now.
I will repeat the point I made previously about correlations in that they are post-fact. To make money from a strong correlation you must know the direction of the lead indicator. In the short term POG and the $USD are more positively correlated than POG and the $AUD. Both are heading for rate cuts. The short term likelihood for POG to continue rising seems much better than the chance it will decline meaningfully. The next question then relates to follow-through. And that is largely predicated on the global economy which we all can see as currently in relatively poor shape. So where @ducati916 and I differ relates to what we regard as "moot."

Love the chart!

Some facts:

1980 - Q1 2003 (22 years) US debt compounded at 9.57% (Gold went into a bear market).
2003 - Q4 2019 (16 years) US debt compounded at 8.17% (Gold in a bull market).



So Gold is not correlated (on those figures) to US debt at all.

What did happen from 1982'ish to the present is that Bonds went into a bull market (Rates falling).

In 1970, rates started to rise. The issue being that they rose at a slower rate than the real rate of inflation until Volcker, who took over in 1979 and jacked them higher than inflation. That's when Gold entered a bear market. Until then, Gold had been in a bull market.

The takeaway seems to be Producer Price Inflation (commodity prices) is the true issue for Gold. The reason being that it crushes profitability of businesses and leads to all manner of economic issues. Consumer price inflation is (seemingly) less of an issue.

Commodity prices have been in an extended bear market. Bonds in an extended bull market.

My questions are: (a) what happens to Gold if those two trends flippe-floppe?; and
(b) Will the level of debt, influence the level of rates at any point?


jog on
duc

 

[rederob]

Some facts:
1980 - Q1 2003 (22 years) US debt compounded at 9.57% (Gold went into a bear market).
2003 - Q4 2019 (16 years) US debt compounded at 8.17% (Gold in a bull market).

View attachment 99428
So Gold is not correlated (on those figures) to US debt at all.

Versus:

 

[ducati916]

Versus:

Again, fantastic chart.

Ok, I would be interested to see the calculation of the correlation coefficient on the actual price data because it is a mathematical function of the data that it is positive for a positive connection (as one quantity increases, so does the other) and a calculation can demonstrate whether the connection is significant.

The chart claims 90%. That looks incorrect.

We have three periods: 1980 to late 1984, 1987 to 2002 where gold goes lower and debt goes higher. The third period is 2012 to current (the eyeball test).

I would be very surprised if it turned out to be 90%.

Is it any use as a 'trading signal'? I would say yes, as long as you are operating in a lifetime sort of trade.

Talking about bull/bear markets and consolidations: the (current) volatility (eye test) still looks a little high to qualify as a clean consolidation (thus separating one bull market from another).

jog on
duc

 

[rederob]

Ok, I would be interested to see the calculation of the correlation coefficient on the actual price data because it is a mathematical function of the data that it is positive for a positive connection (as one quantity increases, so does the other) and a calculation can demonstrate whether the connection is significant.
The chart claims 90%. That looks incorrect.

Not my correlation so I cannot check, but the correlation is definitely positive over the period and you do not need numbers to see that.

Is it any use as a 'trading signal'? I would say yes, as long as you are operating in a lifetime sort of trade.

This just tells us there is a low probability of making a trade that goes completely sour if you have the stomach to keep your investment through the bad times.
There are lots of trading indicators that we can use for our investment decisions so take your pick.

 

[barney]

Appreciate the good commentary being presented by you chaps above

 

[Bill M]

Big moves in gold price in the last 24 hours.
$2,230.63
+$45.36
+2.08%

 

[tinhat]

Big moves in gold price in the last 24 hours.
$2,230.63
+$45.36
+2.08%

That's what happens when people start shooting missiles.

 

[fergee]

Gold goes

That's what happens when people start shooting missiles.

Gold goes on a rocket ride

 

[ducati916]

1. Not my correlation so I cannot check, but the correlation is definitely positive over the period and you do not need numbers to see that.

2. This just tells us there is a low probability of making a trade that goes completely sour if you have the stomach to keep your investment through the bad times.

3. There are lots of trading indicators that we can use for our investment decisions so take your pick.


1. While the correlation does exist at certain periods, at others, it does not, which is why the correlation is certainly not 90%.

2. Based purely on that chart, you cannot be in a 'trade'. What you can do however is use gold as an insurance policy as against fiat currencies (which is pretty much what I do). If you are using trading capital and were sitting in gold 1980 - 2002 you would not have been a happy camper. The opportunity lost costs were simply too high. Even the mid 2011 to 2016 period would have been a tough one, assuming a late entry (into a drawdown period).

3. That is true. Which is why one could look to try and find a more timely trigger. Treasury
Bonds (all 20yr) over three timeframes: 20yrs/10yrs/5yrs







The signals are timely. Not necessarily exact. Usually (not every single example) Bonds will lead Gold and confirm, while still giving timely entry/exits on Gold. You will also have the Fed periodically giving you a heads up as to where Bonds are likely to go, although that can be a tough game to play.

jog on
duc

 

[rederob]

2. Based purely on that chart, you cannot be in a 'trade'. What you can do however is use gold as an insurance policy as against fiat currencies (which is pretty much what I do). If you are using trading capital and were sitting in gold 1980 - 2002 you would not have been a happy camper. The opportunity lost costs were simply too high.

If I had bought into Newcrest mining at under $2 in the 1990s when I first began to trade shares I would be very happy today.

Even the mid 2011 to 2016 period would have been a tough one, assuming a late entry (into a drawdown period).

Again that is not true as had I bought into Ramelius in 2013 at 20cents I would be a very happy camper today.
Timing the markets can be everything to traders but to investors the corollary is time in.

 

[kid hustlr]

Whilst I appreciate the bullishness of gold at present and the ability to trade it, I can't fathom having a large % of my portfolio as a 'buy and hold' long term position

 

[Joules MM1]

Whilst I appreciate the bullishness of gold at present and the ability to trade it, I can't fathom having a large % of my portfolio as a 'buy and hold' long term position

ensure you have an umbrella handy when posting those anti-estab type posts, mkay

 

[ducati916]

If I had bought into Newcrest mining at under $2 in the 1990s when I first began to trade shares I would be very happy today.
Again that is not true as had I bought into Ramelius in 2013 at 20cents I would be a very happy camper today.
Timing the markets can be everything to traders but to investors the corollary is time in.

Well now we are talking about something different, viz. Gold Miners. You can always, via survivorship bias find something post hoc, that supports a new (different) argument.

My question would be, if we are now discussing Gold Mining companies: what on aggregate, befell the entire cohort at the relevant times? I suspect there are more dead bodies than success stories.

The response that I was expecting (as it is the rational one) is: well what drives interest rates? That would be your inflationary argument. It is producer inflation rather than consumer inflation. Commodities measure producer inflation.

Why then (in a period of rising yields) was the rise in commodities not abated, thus triggering a fall in the inflation rate and a slowing/fall in gold? Simply because the real rate of inflation was higher than the nominal yield (until Volcker) given the interplay twixt yield curves.

jog on
duc

 

[rederob]

My question would be, if we are now discussing Gold Mining companies: what on aggregate, befell the entire cohort at the relevant times? I suspect there are more dead bodies than success stories.

I won't go down sidetracks but just remind you that few sectors of industry are immune from going down the gurgler or being taken over.

 

[rederob]

Whilst I appreciate the bullishness of gold at present and the ability to trade it, I can't fathom having a large % of my portfolio as a 'buy and hold' long term position

That's a fair comment, so how many of your shares have appreciated more than 200% in the past 5 years?

 

[rederob]

The response that I was expecting (as it is the rational one) is: well what drives interest rates? That would be your inflationary argument. It is producer inflation rather than consumer inflation. Commodities measure producer inflation.

As this is a forum for mostly trading equities my basis for purchasing a gold stock to "hold" is based foremost on it being a producer with a reserve/resource base that will see it through no less than the next 5 years at an ASIC substantially lower than spot.
In simple English it means choosing a mature mining operation that, except for ongoing exploration costs, is always in the black.
I no longer buy gold equities that are speculative.